Parents are finding it tougher than ever to save for their children鈥檚 post-secondary education as the rising cost of living ramps up financial pressures.
But the mainstays of post-secondary saving 鈥� RESPs, especially 鈥� remain key tools, as do clear goals and plenty of planning.
Julie Petrera, a senior strategist for client needs at Edward Jones, said the first step is getting a handle on cost estimates, which can range from thousands to hundreds of thousands of dollars, depending on the type and length of schooling and whether the child is leaving home.
Other considerations include whether family members, such as a grandparent or the child themself, will contribute and where education ranks on parents鈥� list of savings priorities.
鈥淎re they paying for post-secondary education and saving for their own retirement and funding other expenses, like renovations and vacations?鈥� Petrera asked.
According to an online survey of 1,000 parents with at least one child under 18 by Embark, a company specializing in education savings, some 73 per cent of parents said saving for college and university has been harder recently.
The survey also found just over half of respondents said they would go into debt to pay for their child鈥檚 education.
The Registered Education Savings Plan (RESP) offers a tax-deferred investment account that has been used by millions. More than 481,000 students withdrew funds from an RESP in 2021, according to Employment and Social Development Canada.
Ottawa matches 20 per cent on the first $2,500 put toward an RESP each year, via the Canada Education Savings Grant (CESG), for a total of $500 per year, with higher rates available to lower income families. The lifetime maximum grant amount is capped at $7,200, while total contributions to RESP accounts are limited to $50,000 per beneficiary.
Low income families may also be eligible for the Canadian Learning Bond, which does not require RESP contributions.
RESP beneficiaries in British Columbia may be eligible for an additional one鈥憈ime $1,200 grant, while those in Quebec can enjoy a refundable tax credit with a lifetime maximum of $3,600.
鈥淭he RESP is great. It is designed to help with affordability,鈥� Petrera said. 鈥淏ut on the flip side there are some restrictions on these plans 鈥� on who can withdraw the funds, when they can withdraw them and why.鈥�
RESPs can comprise a major part of a family鈥檚 education funding, but should not be viewed as a 鈥渟tandalone鈥� plan, Petrera said. Non-registered investment accounts offer a supplementary option.
鈥淭here are no grants associated, they are fully taxable, but they have no restrictions. You can put money in up to any amount and withdraw at any time for any reason,鈥� she said.
A tax-free savings account provides another vehicle. Students themselves can鈥檛 open one until they reach 18, but parents or grandparents can use their accounts to help save.
鈥淢y advice on that would be to work with an adviser or work with a professional that understands the pros and cons and the ins and outs of all of these plans to determine what is the best mix to maximize what the client鈥檚 objective is,鈥� Petrera said.
Automatic contributions toward a plan are a simple, effective way to build a nest egg.
鈥淲e think that if each pair can make 50 bucks a month (per person) of contributions, they鈥檒l get $37,000 by the time their kids hit 18 and go to post-secondary school,鈥� Embark CEO Andrew Lo said.
He stressed that parents should educate themselves about education. One in three polled by the company did 鈥渘ot know enough to even guess鈥� how much post-secondary schooling costs.
Erika Shaker, director of the national office of the Canadian Centre for Policy Alternatives, said costs are going up and everything鈥檚 getting more expensive.
She pointed to a shift in education funding from Ottawa a couple decades ago that prompted most provinces to download more of the cost onto students or, in the case of Quebec, 鈥渢wo-tiering鈥� the price between in-province and out-of-province pupils.
The labyrinth of funding programs and rules sometimes acts as more of a barrier than a relief, she added.
鈥淪tudent assistance programs are a patchwork, they鈥檙e messy, they鈥檙e opaque. They鈥檙e actually quite difficult to navigate and they can change midway through a degree,鈥� Shaker said.
鈥淲e have gone to a user-pay model that disproportionately impacts 鈥� negatively 鈥� students who have to borrow, unfortunately, to pay for post-secondary education.鈥�
Christopher Reynolds, The Canadian Press
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